Energy sector in east africa
Energy is one of the main inputs to the production process and therefore, its development is crucial for developing economies aiming to boost their economic growth and private investment. This sector’s activities relate to and strengthen the rest of the economy as energy forms an input for almost all production processes of goods and services. Electricity is one of the important components of the energy sector as it is the most versatile and easily controlled form of energy (IMF, 2017). It contributes to economic growth directly through value addition associated with extraction and transformation of inputs, technology transfers, marketing and distribution of goods or services and indirectly through employment generation.
In many industries, technology transfers tend to increase the relative share of electricity in the value of output and in these industries, productivity growth is found to be greater the lower the real price of electricity and vice versa. In the case of households, access to electricity allows them to meet their most basic subsistence needs which translate into better standards of living (World Bank, 2017). Supply interruptions of many sources of energy are known to have a great impact as they can harshly impact the economies of almost all countries. In addition, stable and lower energy prices are known to help stimulate the growth rate of any economy. This is because lower energy prices result in increasing disposable income for consumers and lowering costs for firms. The resulting improved profit margins for firms and higher disposable income for consumers provide incentives for accelerated rates of growth.
Easterly, 1999 also argues that in order to validate the information from official statistics on output growth, it is helpful to consider developments in the correlations of production, consumption, and economic development or growth, such as consumption of electricity, the mortality rate, credit, and fiscal revenues. In relation to electricity, it is important to understand the correlations and causal relationships between economic growth and electricity, regarding both consumption and productivity to formulate well directed policies, regulate the industry and manage individual firms.
As the country moves towards having an industrialized economy with high sustained growth rates, the government of Uganda has identified electricity generation and distribution as one of the key strategic interventions (NDP II; Vision 2040). As a result, it has invested heavily in the energy sector, particularly the electricity sub-sector, with the aim of increasing accessibility and supply. This move signals the importance of electricity in the country’s industrialization process which is in line with the Ecological growth theory that considers energy to be very critical in growth of the economy through the production process (Stern and Cleveland, 2004; Kummel et al, 2010; Hall et al, 2001; and Stern, 2010). This is contrary to the neoclassical school of thought by Solow (1956) which looks at energy as an intermediate input that can easily be substituted with labor or capital.
The increased investment in the sub-sector currently has Uganda enjoying a short term surplus situation amidst low electricity demand. This has mostly been attributed to the high end-user power tariffs that have increased input prices and prices of other commodities, which in turn contribute to higher overall inflation and also dampen aggregate demand and growth. On the other hand, one may argue that the negative shocks in the economy like sharp changes in prices of goods and services and overall decline in GDP growth rate have increased incidence of income poverty hence reduction in consumption “of electricity”, (UNHS, 2017).
